GM Decision: Judge Puts Brakes on UAW Retiree Benefits Claims

A U.S. District Court Judge has ruled there is no obligation for General Motors Company (NYSE:GM) to pay $450 million in medical benefits to retirees. In the ruling Judge Avern Cohn dismissed the claim by the United Auto Workers union that GM was still under contract for the payment.

In a 2007 contract, GM, its former Delphi Corp affiliate, and the UAW agreed to the medical payment. That contract was not incorporated into a subsequent contract in 2009, drafted following GM’s bankruptcy filing. UAW was making the claim that since Delphi emerged from bankruptcy in 2009, “new GM” was still under contract for payment.

Judge Cohn disagreed. ”Whether New GM has a moral obligation regarding the payment is another matter and not relevant,” Cohn wrote in his opinion. ”The UAW’s efforts to turn the absence of language into language is reminiscent of the efforts to capture a ‘will o’ the wisp.’” Reuters provided excerpts from the 36-page decision. The 2009 contract clearly discharges GM from the payment, Cohn explained. Further, the contract was overseen by U.S. Bankruptcy Judge Robert Gerber in New York, who deemed it in the best interest of the retirees.

In GM’s bankruptcy filing, it was stated that UAW acknowledged “the need to maximize the value of the Debtors’ operating assets and provide for the continuation of the business. The UAW has made significant concessions to enable the sale and to support the viability of the Purchaser.” That explanation was in connection to the 363 Transaction by GM. A 363 Transaction allows a debtor — in this case, GM — to sell corporate assets “free and clear of any interest in such property.”

In regards to retirement benefits, the filing stated that, “The UAW has agreed to be the authorized representative for UAW-Represented Retirees. The class representatives on behalf of the class members, by and through class counsel in certain class actions previously filed against GM on behalf of UAW-Represented Retirees regarding retiree health care benefits have acknowledged and confirmed the UAW Retiree Settlement Agreement.”

The particulars are laid out in the UAW Retiree Settlement Agreement, dated July 10, 2009. UAW President Bob King made a statement following the decision. ”We are disappointed with the Court’s decision in this case, which seeks to protect benefits for retirees who worked all their lives to help make GM and Delphi successful,” King said. UAW will consider whether or not it wishes to appeal.